Mortgage guarantee scheme aims to boost high LTV loans

Mortgage guarantee scheme aims to boost high LTV loans
Credit: Jason Alden/Bloomberg

A mortgage guarantee scheme aimed at small deposit buyers is expected to be announced by the Chancellor in this week’s Budget.

The scheme will be available from April, and aims to allow first-time buyers to obtain a mortgage with a 5 per cent deposit on a property worth up to £600,000.

The government will offer lenders the guarantee they need to provide mortgages that cover the other 95 per cent.

The scheme will provide lenders with the option to buy a government guarantee that compensates them for a portion of their losses in the event of foreclosure.

All lenders under the scheme will also offer mortgages fixed for at least five years which, according to HM Treasury, would provide options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.

Chancellor Rishi Sunak said: “Owning a home is a dream for millions across the UK and we want to help as many people as possible.

"Saving up for a big deposit can often be difficult, and the pandemic has meant there are fewer low deposit mortgages available.

“So by giving lenders the option of a government guarantee on 95 per cent mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”

Mark Harris, chief executive of SPF Private Clients, said the scheme was “positive news” for first-time buyers.

He added: “For those with little in the way of deposit, finding a 95 per cent loan-to-value mortgage has been pretty much impossible in recent months.

“The odd building society here and there has offered them, with Saffron Building Society launching at 95 per cent in June but it only lasted a matter of days. Furness Building Society also has a selection of 95 per cent products but these are restricted to certain postcodes.

“The only other current option to obtain a mortgage at this level is to call upon a third party, typically a parent, to provide extra security in the way of deposits or equity within the ‘guarantor’ property. Not everyone is in a fortunate position to do so.”

The number of 95 per cent LTV mortgages available has declined dramatically since the pandemic. Data from Moneyfacts showed there were five products at the start of last month, compared to 405 at the start of February 2020.

In a party conference speech last year, Prime Minister Boris Johnson said the Conservatives would help turn ‘generation rent’ into ‘generation buy’ with a policy on long-term fixed-rate mortgages of up to 95 per cent LTV.

Johnson said: “I want generation rent to become generation buy and these 95 per cent mortgage guarantees help to deliver this promise.

“Young people shouldn’t feel excluded from the chance of owning their own home and now it will be easier than ever to get onto the property ladder.”